ASC 606 PIR: What It Is and Why It Matters

Introduction

In 2014, the Financial Accounting Standards Board (FASB) first issued ASU 2014-09, which became effective in 2018. The standard update aimed to create a unified framework for recognizing revenue across industries by creating Topic 606, Revenue from Contracts with Customers. As part of the standard-setting process, the FASB conducted a Post-Implementation Review (PIR) in 2025 to assess whether the standard achieved its intended objectives.

In this article, we explore the primary motivations behind the new standard and the challenges in its implementation across diverse industries. This article is meant to serve as a brief overview of the PIR. For a more in-depth understanding, the PIR is available via the FASB website.

Background on Topic 606 and the PIR

With the issuance of new guidance in Revenue from Contracts with Customers (ASC 606), the FASB worked closely with the International Accounting Standards Board (IASB) to converge revenue recognition standards globally and create a framework based on consistent principles. The revenue standard shook up the financial reporting world as companies across industries prepared to apply universal recognition principles based on contracts with customers.

Under the new standard, companies now use a five-step model to evaluate contracts, or agreements to transfer goods or services to their customers.

To apply the model, companies must determine when they satisfy a performance obligation to provide goods or services to customers, with the crux of that decision coming from when customers obtain control over those goods or services. Entities must also take into consideration other factors, including whether they are the principal (the primary provider of a good or service in a transaction) or an agent (an entity arranging for the provision of goods or services from a principal to a customer). Although these principles are simple in theory, they require substantial judgment to apply in practice.

The FASB implemented the new standard to address deficiencies in previous guidance, which included numerous standards that often differed by industry. In addition, some FASB standards were not consistent with IFRS guidance. Working together, the FASB and the IASB created a single set of principles to apply to revenue recognition, thus increasing comparability across entities and reducing the complexity of referring to multiple standards in financial statement preparation. [iii]

Overall, the updates found in Topic 606 for U.S. GAAP and IFRS 15 for IFRS aim to “remove inconsistencies and weaknesses in revenue requirements” and create a “robust framework” for consistent and faithful revenue recognition.¹

The PIR Process

The overall objectives of the PIR were:

1. To assess whether the new revenue standard was providing financial statement users with decision-useful information
2. To analyze the benefits and costs of implementing the standard and whether those aligned with the Board’s and users’ expectations
3. To generate feedback on the FASB’s standard-setting process and identify potential areas for adjustment
   

During the PIR process, the FASB engaged with over 2,000 stakeholders: 12% investors, 31% preparers, 42% practitioners, and 15% academics, standard setters, and other groups. [vii] The FASB solicited feedback from these stakeholders to help achieve a successful implementation process and to understand the true benefits and costs of the updated revenue standard.

The PIR process involved three stages.

Stage 1: Post-Issuance Date Implementation Monitoring

Stage 1 started after the issuance of Update 2014-09 in 2014 and continued until mid-2021 as staff helped monitor implementation and respond to questions. The FASB created the Transition Resource Group (TRG) to assist in the implementation process by holding public meetings and issuing educational memos from 2014 to 2016. This led to the issuance of several updates and deferred effective dates to provide preparers with enough time to implement the standard’s sweeping changes.

Throughout Stage 1, the FASB received feedback from stakeholders that led to clarifications and improvements to the standard. The TRG played an essential role in addressing implementation issues, resulting in amendments to Topic 606. These amendments provided additional guidance on principal versus agent considerations, performance obligations, and licensing, among other areas.

Stage 2: Post-Effective Date Evaluation of Costs and Benefits

Stage 2 started when public entities adopted the standard in 2018 and continued through the FASB’s October 2024 public board meeting. The focus of this stage was to identify the costs and benefits of the implemented standard and to provide ongoing support for stakeholders by responding to technical inquiries.

The FASB solicited feedback through a variety of methods, including advisory group meetings, outreach discussions, surveys, and a public roundtable on the costs, benefits, and implementation challenges of the revenue standard.¹ The FASB and IASB regularly communicated with each other on the progress of each board’s PIR process.

The FASB’s Stage 2 efforts found that the standard has generally improved comparability and transparency in revenue recognition across industries, benefiting investors and financial statement users. While initial implementation costs were significant, stakeholders largely view the benefits as outweighing these costs. However, some challenges remain, particularly in areas such as contract liability accounting and distinguishing between different revenue models (e.g., licenses vs. SaaS).

In 2024, the FASB issued two clarifications of the interaction between the revenue standard and other guidance under GAAP to assist stakeholders in applying ASC 606.²

Stage 3: Summary of Research and Reporting

In Stage 3, the FASB documented and summarized the activities involved in the review process and the actions it took to address issues. [vi] The resulting report explains that Topic 606 meets its intended purpose without significant unintended consequences, and ongoing compliance costs remain manageable.

The standard-setting process was refined based on stakeholder feedback, particularly regarding implementation timing and convergence with other standards. While some application challenges persist, they primarily stem from the inherent complexity of revenue recognition rather than deficiencies in the standard itself. Moving forward, the FASB will continue supporting the application of Topic 606 through technical guidance and monitoring emerging issues but does not see a need for immediate standard-setting action.

Key Findings from the PIR

Despite the FASB’s efforts to establish a consistent and coherent framework, revenue recognition continues to be complex in areas that require significant judgment and estimation under ASC 606. The PIR report highlights that applying the standard often necessitates management assumptions, which impact both financial reporting and audit processes.

A key challenge in ASC 606 is the reliance on management judgment and estimation, particularly in areas such as variable consideration. When estimating future revenue, companies must ensure that a significant reversal of the estimate is not probable. Given the inherent uncertainty surrounding future transactions and customer behavior, companies must carefully determine these estimates to maintain compliance with ASC 606 while minimizing audit complexities.

Business model evolution and financial reporting complexities also present significant challenges, particularly in the technology, entertainment, and subscription-based services industries. A key issue arises in hybrid transactions, which involve both an on-premises software license and access to cloud-based services. Determining whether multiple performance obligations are distinct in these cases requires significant management judgment.

Insights from a FASB Revenue Recognition Project Manager

As part of our research, we conducted an interview with Jeff Wilks, a key figure in the development of ASC 606. Wilks managed the project at the FASB from 2006 to 2008 and served as an IASB technical consultant from 2008 to 2009. He is now the Associate Dean of the Marriott School of Business and the founder of RevenueHub. Our objective during the interview was to explore unexpected findings and reactions to feedback received in the PIR.

Wilks described the standard’s development as a monumental endeavor characterized by meticulous analysis and proactive anticipation of implementation hurdles. “It was such a comprehensive effort,” he recalled. “There were over 200 board memos written, and every one of those dealt with issues that would impact implementation.”

One of the most persistent challenges highlighted by Wilks was the standard’s application to the increasingly complex realm of digital platforms and service-based economies. Principal versus agent determinations, in particular, emerged as a significant challenge. He explained that complexity often stems from business arrangements themselves rather than from the standard.

Wilks emphasized the FASB’s commitment to principle-based standards that adapt to evolving business models. The cornerstone of ASC 606—the transfer of control principle—was chosen to capture the underlying economics of revenue recognition and to serve as a universal principle applicable across industries. As Wilks summarized, “One ring to rule them all.”

Wilks also noted the FASB’s proactive engagement with emerging issues during the standard’s development, allowing key principles to be adopted early and easing the eventual transition to ASC 606.

The Future of Revenue Recognition and Policy Adjustments

The PIR provided valuable insights for refining the standard-setting process, highlighting the importance of Transition Resource Groups and clarifying the scope of revenue standards relative to other GAAP guidance. It also acknowledged the significant costs incurred by entities when adopting new accounting standards, even when financial reporting outcomes remain unchanged.

Despite these challenges, the PIR findings do not indicate an immediate need for amendments to Topic 606. The FASB plans to continue supporting application through the Technical Inquiry Service and monitoring emerging issues, ensuring that any necessary adjustments are addressed in a timely manner while maintaining global convergence.

Conclusion

The FASB maintains that the overall objective of ASC 606 was met and that the benefits outweighed the costs. Reflecting on the implementation, Jeff Wilks acknowledged the significant costs but concluded that, now that application has reached a steady state, stakeholders have been largely satisfied with the standard.

The collaborative efforts of the FASB, IASB, TRG, and numerous stakeholders have resulted in successful converged U.S. and international revenue standards and increased comparability in revenue reporting worldwide. Going forward, companies will continue using the robust yet simple model in ASC 606 to navigate increasingly diverse revenue recognition scenarios in a complex accounting environment.

Sources:

1. FASB Review of Revenue Recognition (Topic 606)
2. FASB Post-Implementation Review Report: Revenue from Contracts with Customers (Topic 606)

Other Sources Consulted:

Post-Implementation Review Process